Although important, the economic reforms that took place in
developed market economies and in developing countries were far
less dramatic and profound than those that followed the collapse
of the centrally planned economies and the political systems of
Eastern and Central Europe and the former USSR.

Attempts at economic reform began in the 1970s and accelerated
in the 1980s as economic conditions worsened. Then, in 1989, the
political systems in Central and Eastern Europe and the former
USSR began their sudden collapse, leading to the abandonment of
the centrally planned system and a move towards a market-based
economy. These interrelated political and economic events
continue to have a significant effect on world agricultural
markets and on world trading patterns.

A pricing system that kept consumer food prices well below
world market levels and below the level that would balance supply
with demand, combined with inefficient production and
distribution systems, resulted in excess demand for food in many
areas. Consequences of this excess demand were rationing, queuing
and importing from outside the trading bloc. These imports were
largely in the form of bulk commodities from Organisation for
Economic Cooperation and Development (OECD) countries and had to
be paid for in hard currency. (However, the former USSR also
imported large quantities of sugar from Cuba on a barter
arrangement for petroleum products.)

In all cases the collapse of the old economic and political
system resulted in sharp initial declines in real per caput GDP
(Table 18). This was accompanied by inflationary pressure as the
central banks attempted to mitigate the economic decline or to
prevent the collapse of state enterprises. Inflation ranged from
serious to near hyperinflation, depending on the macroeconomic
policies followed and the difficulties of adjusting to those
policies. For the first time unemployment became a major issue in
these countries, as inefficient industries disappeared or were
restructured to function in a market economy while the
unemployment and underemployment that had been disguised under
the old system became impossible to hide. In most countries the
retail prices of most products were freed, although in some cases
the prices of certain basic food products, such as bread, are
still subsidized or controlled.

The shift from a socialist to a capitalist economy and the
consequent removal of most internal subsidies have resulted in
shifts in relative prices and in food consumption patterns. The
relative prices of meat, poultry and dairy products have risen
and consumption of these products has declined sharply, as
consumer incomes have fallen and unemployment has increased.
These products are now readily available only for those who can
afford them at the new unsubsidized prices.

Other factors are also likely to affect the demand for food.
As public subsidies for items such as housing, transportation and
other services are reduced or removed, some reallocation of
personal spending is likely to occur, away from food and towards
these other goods and services.

TABLE 18
Indicators of economic and agricultural performance for selected
countries in Central and Eastern Europe and the former USSR

Thus, in the short to medium term, internal
economic pressures will tend to reduce the demand for foodstuffs
in the former Council for Mutual Economic Assistance (CMEA)
countries and thus reduce the demand for imports. The time that
will be required for income growth and food demand to reach
levels comparable to those that prevailed prior to the reforms is
difficult to predict. It will depend on a number of factors,
generally related to the capacity of the countries concerned to
maintain the political and social stability necessary to pursue
and intensify consistent programmes of reform. The depth of the
economic recession and related problems in several of these
countries suggest that full recovery will be a much longer
process than initially estimated. Whatever the extent and pace of
such recovery, the levels and patterns of per caput food
consumption are bound to be affected significantly and are not
likely to return to those of the past.

This is so not only because of falling average
incomes during the phases of transition, hut also because
different income distribution patterns are likely to emerge, with
a wider gap between the higher and lower income groups.

While adjustments in demand have already been
significant, and are likely to continue in the short to medium
term, little progress has yet been achieved with regard to
production and marketing systems, except for in some countries
that are relatively advanced in the process of reform.
Privatization has proved to he a difficult undertaking and will
not solve per se many of the problems. In particular, in some
cases public: monopolies have simply become private monopolies.
As the process takes hold, however, shifting to private ownership
of the products in the marketing system should provide incentives
for reducing waste anti increasing quality. The appearance of
imparted consumer goods may also provide competition to internal
processing and marketing activities.

The following section reviews various attempts
at quantifying the foreseeable changes in supply and demand
patterns in the transition economies, and the effects these
changes are likely to have on trade.

FAO projections to the year 2010 indicate that
recovery from the sharp fall in agricultural output that took
place in the initial years of the reform will he slow and that
aggregate production growth between 1990 and 2010 may be only
half that of the previous 20 years. The sharp reduction in per
caput consumption in the initial years of the reforms will
probably be reversed, but future levels are unlikely to be above
those of the prereform period. For example, the average annual
per caput consumption (all uses) of cereals in these reforming
countries is projected to be 660 kg compared with 780 kg in
1988/90 (in clean weight). This would be the result of slightly
lower per caput food consumption of cereals and livestock
products, little growth in livestock production, reductions in
post-harvest losses, smaller quantities of cereals being used as
seed and less cereal feed being used per unit of livestock
output. In the case of meat, per caput consumption is expected to
revert to near the prereform levels of about 70 kg, but with more
poultry and less beef being consumed.

Overall, gross agricultural production growth
is expected to decline, from an annual 1.2 percent during the
period 1970 to 1990, to 0.4 percent yearly between 1988/90 and
2010. An even more pronounced decline is expected in domestic
demand growth, from 1.4 percent to 0.2 percent during the same
period.

Such differentials in domestic supply and
demand expansion would result in significant shifts in the trade
balances of the countries concerned.

In the case of cereals, from being large net
importers in the past decades (their aggregate cereal net imports
amounted to 40.3 million tonnes in 1979/81 and 36.4 million
tonnes in 1988/90), these countries are expected to emerge as net
exporters of 5 million tonnes in 2010.

Other estimates confirm the direction of
changes in trade balances suggested in the FAO study, but some
consider that the former centrally planned economies may emerge
as far greater exporters by the year 2010. One noted analyst of
the former USSR estimated that consumption adjustments could
reduce cereal use by as much as 35 million tonnes annually and
that savings in postharvest losses could amount to another 10
million tonnes annually or 5 percent of production. If feeding
efficiency were to be increased by 15 percent (which represents
about one-third of the gap between feeding efficiency in the
former USSR and in Germany), 20 million tonnes would be saved
annually. Meanwhile, improved seed and seed use could save
another 10 million tonnes of cereals. Additional savings could be
achieved by the use of improved pasture and hay to replace grain
concentrates. While these estimated savings and improvements may
not be additive they confirm that, even without the development
of new varieties or animal breeds, the food deficit economies
currently in transition are likely to become self-sufficient, if
not net exporters, of a number of products.

Another recent study concluded that changes in
the former USSR may have a significant impact on worldwide trade.
Since livestock products were highly subsidized compared with
grains, liberalization should raise the production of grain and
reduce that of livestock (thereby reducing feedgrain demand).
With demand for grain falling and producer prices and output
rising, a surplus in grain seems inevitable. By the year 2000,
the Russian Federation's net grain exports could amount to nearly
one-fifth of those predicted for the United States.

At the very time when there is a perceptible
trend towards the formation of new, or the expansion of existing,
regional trading blocs, one of the oldest and tightest - the CMEA
has disintegrated. This bloc had been established by the former
USSR to tie together the centrally planned economies of Central
and Eastern Europe and of some other areas.

The foreign trade system organized by the
former USSR was designed to complement the internal centrally
planned and controlled economic systems of the other CMEA states.
Trade was conducted by state entities and payments took place in
nonconvertible roubles, with CMEA serving as a clearing-house
system. CMEA was organized with some concepts of specialization
in mind and with a view to maximizing self-sufficiency within the
bloc. In general, the former USSR exported heavy manufactured
goods, as well as oil, gas and other natural resources, to the
countries of Central and Eastern Europe, which in turn exported
consumer goods, including foodstuffs, to the former USSR.
Exchanges took place at prices set by the state trading agencies
rather than at world market prices.

The strength of this trading bloc can be seen
by the fact that in 1988 all Eastern European countries except
Hungary destined 70 percent or more of their total exports to
other centrally planned economies, more than two-thirds going to
CMEA countries. All except Hungary also received more than
two-thirds of their imports from centrally planned economies,
almost entirely from CMEA countries. Even Hungary sent half of
its exports to CMEA countries and received 49 percent of its
imports from them.

The pattern was similar for most agricultural
exports and imports, which were also primarily effected among
CMEA countries. Poland was an exception, because its agricultural
trade, in contrast to its non-agricultural trade, was heavily
oriented towards Western Europe and the United States.

Some countries, such as Hungary and Poland, had
attempted to shift trade towards non-CMEA countries even before
the demise of central planning. As the centrally planned
economies broke down, the CMEA ceased to function and trade
between the countries collapsed. What remains of it now is
effected in convertible currencies and at world prices.

The effect of these changes on trade is already
apparent. The members of the former bloc have changed from being
major importers of cereals and oilseeds to being self-sufficient,
or close to it, at lower consumption levels. Moreover, countries
that were exporters of foodstuffs to the former USSR have now
lost this market and are looking for other outlets.

Thus, one of the major events shaping
agricultural trade over the period ahead will be the entry of
over 350 million consumers and a massive amount of agricultural
resources (which have, until now, largely been used
inefficiently) into the market-oriented world trading system.
This is occurring at a time when major institutional changes are
being introduced throughout the system itself.

The problems of transition to market-oriented
trading systems have been exacerbated by difficulties of market
access. Despite major efforts to gain market share for their
products, the transition economies have often been unable to
surmount protectionist barriers, especially in the developed
market economies and in particular for agricultural products. To
make matters worse the transition economies have faced
competition from subsidized agricultural products troth in their
own domestic and in third-country markets.